Strategy | How to Start a Loan Business

The Truth About State-Imposed 36% APR Caps

Posted by Team Jer / 36% APR, Strategy

By: Jer Ayles – Trihouse Consulting.

The continuing trend of states imposing a 36% APR cap on payday loans is touted as a consumer protection measure. However, this well-intentioned policy has unintended consequences that actually harms the very people it aims to help. Let’s explore why payday loan products are better than the state implementing a 36% APR cap thus driving payday loan lenders out of the state and thereby eliminating subprime consumer access to credit.

The Fallout of the 36% APR Cap: A Case Study of Illinois

In Illinois, the imposition of a 36% APR cap has resulted in a dramatic reduction in the availability of small-dollar loans. A comprehensive study found that this restriction decreased the number of loans to subprime borrowers by 44% while increasing the average loan size by 40%.

This means that fewer consumers are getting the loans they need, and those who do are forced to borrow larger amounts, which often leads to greater financial strain.

The Demand for Short-Term Credit Persists

The demand for short-term credit does not disappear with the imposition of an APR cap. Instead, it forces consumers to seek alternative sources, often leading them to unregulated and potentially predatory lenders.

Illegal lenders, who operate without oversight, typically charge exorbitant rates far exceeding the 36% cap, putting consumers in even more precarious financial positions.

Misguided Legislation and Unintended Consequences

Proponents of the 36% APR cap argue that it protects consumers from high-interest rates. However, this perspective fails to consider the operational costs and risks associated with small-dollar lending.

In 1916, it was determined that an annual interest rate of about 36% was necessary to cover the costs and risks of small-dollar loans. Today, with inflation and increased operational costs, this rate is no longer viable, especially for short-term loans.

Evidence from Other States

Colorado’s experience corroborates Illinois’s findings. Data from Colorado’s attorney general confirmed that interest rate caps reduce access to credit for nonprime consumers.

Comparatively, states like Utah and Missouri, which have fewer restrictions on small-dollar lending, have not seen the same reduction in credit availability.

The Bankruptcy Boom

Recent data indicates a significant rise in bankruptcy filings, a trend that has persisted for 19 consecutive months.

Consumers, unable to secure necessary short-term credit, are increasingly turning to bankruptcy as a last resort.

This not only devastates their credit scores but also hampers their financial recovery and stability.

Addressing Opposing Viewpoints

Critics of high-interest payday loans argue that these products trap consumers in a cycle of debt.

While this is a valid concern, the solution lies not in capping interest rates but in improving financial literacy and ensuring transparent lending practices.

Consumers should have the option to choose loans that meet their needs, with full awareness of the terms and conditions.

Our elected officials, and more importantly, their staff members, need to engage directly with their constituents to understand their financial challenges better. It is naïve to ignore the fact that lobbying organizations and so-called non-profits often have their own agendas.

A Call for Balanced Regulation

Rather than imposing blanket APR caps, regulators should focus on creating a balanced framework that protects consumers while ensuring access to credit.

This includes setting reasonable interest rates that reflect the costs and risks of lending, coupled with robust consumer protection measures to prevent abusive practices.

Encouraging a Dialogue

This topic is undoubtedly controversial, and we welcome diverse opinions. Share your thoughts in the comments below and join the conversation. How can we better balance consumer protection with the need for accessible credit?

Ready to Brainstorm? Choose a day/time: LINK

Questions? Need help? Introductions?

Reach out to Jer at : TrihouseConsulting@gmail.com

4-WAYS I CAN HELP YOU!

Grab a copy of our “bible:” Learn More

Brainstorm: Learn More

The Business of Lending: Learn More

Free Bi-Monthly Newsletter: Learn More

Team Jer

20+ years in "the business of lending to the masses." Operator, lender, consultant... a virtual CONDUIT for the industry. Need help getting into the industry? Have questions? Looking for 3rd party vendors and suppliers? Reach out... Jer

All Posts

07
Jun

Capture More Borrowers: 20 Innovative Marketing Strategies for Subprime Personal and Car Title Loans

Posted by Team Jer / Strategy

In today’s challenging economic climate, more consumers than ever face sudden financial emergencies.

With bankruptcies on the rise and many households struggling to cover unexpected expenses, the demand for quick, accessible financial solutions has never been greater.

As a subprime personal loan or car title loan provider, your services are not just valuable, they are a lifeline to those in need.

To help you reach and assist these credit-challenged consumers, we have compiled a comprehensive list of savvy, unique, and creative marketing strategies designed to attract digital and offline borrowers.

Implementing these ideas will enhance your customer base and position your business as a trusted source of financial relief in times of need, reinforcing the importance of your role in the community.

Digital Marketing Ideas

Targeted Social Media Campaigns: Utilize Facebook, Instagram, and TikTok to run targeted ads highlighting the speed and convenience of your car title loans. Use engaging visuals and customer testimonials to build trust.
Search Engine Optimization (SEO): Optimize your website for keywords related to car title loans, emergency loans, and financial help. Create a blog with helpful content on managing sudden financial emergencies, linking to your loan services.
Pay-Per-Click (PPC) Advertising: Invest in Google Ads targeting keywords like “quick cash loans,” “car title loans,” and “emergency loans.” Use geo-targeting to reach local customers. [Yes, yes, we know! Google doesn’t approve of >36% APR loans. Know that there are workarounds!]
Email Marketing: Develop a robust email marketing strategy with personalized messages. Offer tips on financial management, special loan offers, and customer success stories.
Mobile App Development: Create a user-friendly mobile app for easy loan applications, loan tracking, a borrower payment portal, and customer support. Offer exclusive app-only promotions.
Influencer Partnerships: Collaborate with local influencers or financial bloggers who can authentically promote your services to their followers.
Video Marketing: Produce engaging video content explaining how car title loans work, success stories from past customers, and quick financial tips. Share these on YouTube, social media, and your website.
Live Chat and Chatbots: Implement live chat support and AI-driven chatbots on your website to answer customer queries instantly, improving customer engagement and conversion rates.
Webinars and Online Workshops: Host free financial literacy and emergency financial planning webinars. Use these platforms to subtly introduce your loan services.
Remarketing Campaigns: Use remarketing tactics to target visitors who have previously visited your website but didn’t convert. Show them ads highlighting the benefits of your loans.

Offline Marketing Ideas

Local Radio and TV Ads: Create engaging ads for local radio and TV stations emphasizing the quick and easy access to cash through your car title loans.
Community Sponsorships: Sponsor local events, sports teams, or community programs. This increases brand visibility and fosters goodwill within the community.
Partnerships with Local Businesses: Partner with auto repair shops, grocery stores, and pharmacies to place flyers, posters, and business cards in their locations.
Billboards and Transit Advertising: Billboards should be used in high-traffic areas, and advertisements should be placed on buses and trains to increase brand visibility.
Direct Mail Campaigns: Send postcards or letters with information about your loan services, special offers, and success stories to targeted zip codes.
In-Store Promotions: Offer special in-store promotions, such as discounts on interest rates for first-time borrowers or referral bonuses.
Financial Literacy Workshops: Host free financial literacy workshops in your storefront locations. Use these events to educate consumers and promote your services.
Customer Referral Program: Create a referral program where existing customers can earn rewards for referring friends and family.
Local Newspaper Ads: Place ads in local newspapers and community newsletters, focusing on the benefits and accessibility of your loans.
Community Boards and Libraries: Post flyers and brochures in community boards, libraries, and local centers where people facing financial difficulties may visit.

Ready to take your subprime loan business to new heights of success?

Let Trihouse Consulting, with our expertise and industry knowledge, guide you in implementing these innovative, unique, and effective marketing strategies.

We understand the unique challenges and opportunities in your industry, and our strategies are tailored to help your business stand out and attract the right customers.

Reach out to us today to schedule a consultation and start scaling your business with confidence in your marketing approach!

4-WAYS I CAN HELP YOU!

Grab a copy of our “bible:” Learn More

Brainstorm: Learn More

The Business of Lending: Learn More

Free Bi-Monthly Newsletter: Learn More

27
May

The Payday Loan Industry: A Necessary Lifeline or Legalized Extortion?

Posted by Team Jer / Strategy

The Controversial Truth About Payday Loans: Necessary Evil or Predatory Trap?

Doris James, a hardworking single mother of two, never imagined she would find herself in a financial crisis.

With a stable job as a cashier, she managed to make ends meet each month. But when her youngest child fell ill and required expensive medical prescriptions, Doris’s savings were quickly depleted.

Facing mounting medical bills, Doris reached out to family and friends to no avail. They were all tapped out.

Doris then turned to her church. Again, her church couldn’t help. So many of the parishioners were facing their own financial catastrophies; many iving in their cars. [More than a few no longer owned a car!]

Ultimately, having no other immediate options, Doris turned to a payday loan for help.

For Doris, the payday loan seemed like a lifeline. It provided her with the immediate cash she needed to cover her child’s medical expenses.

However, as weeks turned into months, Doris found herself struggling to repay the loan. The high interest rates and additional fees quickly turned her initial relief into a relentless cycle of debt.

The payday loan industry is often painted in broad strokes as predatory and exploitative, but the reality, as Doris’s story illustrates, is far more complex.

Are payday loans a necessary financial tool for those with no other options, or do they perpetuate a cycle of debt that traps the most vulnerable?

Let’s dive into the facts and the controversy surrounding payday loans.

The image provided by TheBusinessOfLending.com highlights a critical point about APR calculations: they can be misleading when applied to short-term loans like payday loans.

For instance, borrowing $100 and paying $1 in interest results in vastly different APRs depending on the repayment period.

If repaid in a year, the APR is 1%. However, if repaid in an hour, the APR skyrockets to 8760%.

This calculation exaggerates the cost of payday loans when viewed over an extended period, such as 52 weeks, assuming continuous rollovers.

To illustrate this fallacy, consider the scenario of taking a taxi from New York to Los Angeles.

Such a journey, intended for short distances, would be exorbitantly expensive and impractical when stretched over a long distance.

Similarly, renting a hotel room nightly for an entire year would be far more costly than a monthly rental agreement.

These examples show that certain services are designed for short-term use, and their costs appear disproportionately high when extended beyond their intended duration.

Therefore, comparing payday loan APRs over a full year without considering their short-term design misrepresents their actual cost.

Payday loans are meant to provide quick financial relief, not long-term financial solutions.

Just as a taxi ride or nightly hotel stay is not intended for long-term use, payday loans should be evaluated within their appropriate context.

This comparison underscores that payday loan APRs, while seemingly high, are subject to interpretation and should be understood within the framework of short-term borrowing.

The Case for Payday Loans

1. Accessibility for the Credit-Challenged

Payday loans provide quick and easy access to cash for individuals who might not qualify for traditional loans due to poor credit histories.

This accessibility can be a critical lifeline during financial emergencies, such as unexpected medical bills or urgent car repairs.

2. Speed and Convenience

The application process for payday loans is typically fast, with many lenders offering same-day approval and funding.

This speed is vital for those who need money immediately and cannot afford to wait for a traditional loan approval process.

3. No Need for Credit History

Payday lenders do not require a strong credit history, making these loans accessible to a broader demographic.

This inclusivity ensures that even those who have made financial mistakes in the past can access the funds they need.

4. Regulation and Transparency

Contrary to popular belief, the payday loan industry is regulated both at the state and federal level.

For instance, in Texas, the Office of Consumer Credit Commissioner (OCCC) monitors payday lenders to ensure compliance with state laws. Fees and terms are disclosed upfront, providing transparency that helps consumers make informed decisions.

The Predatory Argument

1. Exorbitant Interest Rates

Critics argue that the high interest rates charged by payday lenders are exploitative. For example, a typical payday loan can carry an annual percentage rate (APR) of over 400%【7†source】. Such rates can make it difficult for borrowers to repay the loan, leading to a cycle of debt.

2. Debt Traps

Many payday loan borrowers need more time to repay the initial loan, leading to rollovers and additional fees. This cycle can trap borrowers in a continuous debt loop, with each new loan taken out to repay the previous one.

3. Targeting the Vulnerable

Payday lenders often target low-income individuals who are already struggling financially. The easy availability of these loans can lead borrowers to make poor financial decisions, exacerbating their financial woes.

4. Lack of Long-Term Solutions

While payday loans provide short-term relief, they do not address the underlying financial issues that lead individuals to need such loans in the first place. This lack of a long-term solution can leave borrowers in a worse financial position than before.

Counterarguments to the Criticism

1. Regulation Mitigates Abuse

The argument that payday loans are unregulated and predatory does not hold in states like Texas, where the OCCC ensures that lenders comply with strict guidelines. Transparency in fees and terms allows borrowers to understand the costs involved.

2. Financial Literacy is Key

The cycle of debt often results from a lack of financial literacy rather than the loan itself. Increasing financial education can help borrowers make better decisions and use payday loans responsibly.

3. Not All Borrowers Fall into Debt Traps

Many payday loan borrowers use these loans responsibly and repay them on time. These loans can provide a crucial stopgap during financial emergencies without leading to long-term debt for all users.

4. Alternatives are Limited

For many individuals, payday loans are the only available option. Traditional banks and credit unions often turn away those with poor credit, leaving payday lenders as the only source of quick cash.

Conclusion

The payday loan industry is undoubtedly controversial, with strong arguments on both sides.

While it is essential to recognize the potential for exploitation and the need for regulation, it is equally important to acknowledge the role payday loans play in providing critical financial access to those who need it most.

Instead of vilifying payday loans outright, a more balanced approach involving regulation, transparency, and financial education could help ensure these loans serve their intended purpose without trapping borrowers in a cycle of debt.

What do you think? Are payday loans a necessary evil or a predatory trap? Share your thoughts in the comments below!

4-WAYS I CAN HELP YOU!

Grab a copy of our “bible:” Learn More

Brainstorm: Learn More

The Business of Lending: Learn More

Free Bi-Monthly Newsletter: Learn More

20
May

Shocking Rise in Delinquency Rates: Why Car Title Loans Are the Ultimate Solution!

Posted by Team Jer / Strategy

The New York Fed’s Quarterly Report on Household Debt and Credit for Q1 2024 uncovers a significant trend: credit card and auto loan delinquencies are on the rise across all age groups, signaling a growing financial distress among households.

Total household debt increased by $184 billion (1.1%), reaching $17.69 trillion, with mortgage balances up by $190 billion to $12.44 trillion.

Auto loan balances continued their upward trend, now at $1.62 trillion.

Despite a decrease in credit card balances by $14 billion, delinquency rates for both credit cards and auto loans increased, with 8.9% of credit card balances and 7.9% of auto loans transitioning into delinquency.

These findings are crucial for understanding the current state of household debt and credit, and their implications for the financial industry.

For car title loan lenders, this presents a promising opportunity.

With traditional forms of credit showing increased default rates, consumers with limited credit options might find collateralized car title loans more appealing.

These loans, typically offered at a 25% to 40% loan-to-value ratio, provide a practical alternative for immediate financial relief without the stringent credit requirements of traditional loans.

As financial distress worsens, the demand for accessible, short-term credit solutions like car title loans is likely to grow, highlighting their potential in the current economic climate.

4-WAYS I CAN HELP YOU!

Grab a copy of our “bible:” Learn More

Brainstorm: Learn More

The Business of Lending: Learn More

Free Bi-Monthly Newsletter: Learn More

08
May

60% Can Barely Make Ends Meet: Unveiling America’s Paycheck-to-Paycheck Crisis

Posted by Team Jer / Strategy

The “PYMNTS-New-Reality-Check-February-2024” report provides an in-depth look into U.S. consumers’ financial struggles and behaviors, particularly those living paycheck to paycheck. Below are the statistics highlighted in the report. [Link to Report below.]

NOTE:

While this “PYMNTS-New-Reality-Check-February-2024” report indicates that a segment of U.S. consumers remains somewhat optimistic about their financial futures despite economic pressures, I find this outlook overly optimistic, given the broader economic data.

For instance, from 2020 to 2024, food and beverage prices experienced an average annual inflation rate of 5.09%, significantly higher than the overall inflation rate, leading to a cumulative price increase of 21.95% over these years【source】. Such substantial increases in essential items like food highlight a more challenging economic environment than the report might suggest.

Furthermore, the housing market has seen dramatic price increases, primarily driven by low mortgage rates and a pandemic-induced demand surge, leading to a greater than 50% reduction in housing inventory since early 2020【source】. This housing price surge significantly contributes to the cost-of-living increases not fully captured by the general CPI inflation figures reported around 3-4% annually【source】.

These specific sector inflations in essential areas like food and housing suggest that the economic pressures on consumers are more severe than what may be reflected in broader inflation metrics or consumer optimism reported in the PYMNTS study. Therefore, it’s critical to consider these focused economic factors when evaluating consumer financial health and outlook, as they paint a more accurate picture of the challenges many Americans face trying to keep up with rising costs.

NOW, here are the statistics highlighted in the report:

1. Living Paycheck to Paycheck: As of December 2023, 60% of U.S. consumers lived paycheck to paycheck, a decrease from 64% in the previous year.

2. Struggling with Monthly Bills: In December 2023, 19% of consumers reported difficulties paying monthly bills, down from 24% in December 2022. This indicates a slight improvement in the financial situation of consumers, which could lead to increased consumer spending.

3. Economic Concerns: Despite a decrease in overall concern from the previous year, 83% of consumers remained worried about near-term economic conditions as of the end of 2023. This is a significant decrease from the 90% reported in 2022, indicating a slight improvement in consumer confidence.

4. Optimism about Personal Financial Situations: It’s noteworthy that a significant 39% of consumers felt optimistic about their financial futures, a figure that remained unchanged from December 2022, indicating a steady belief in better times ahead.

5. Expectations for Inflation and Wages:

– More than half of the consumers expected inflation to increase in 2024.

– Less than 40% of consumers anticipated real increases in their earnings for the year.

6. Savings Goals: Despite economic uncertainties, 58% of consumers hoped to manage their spending well enough to end 2024 with more savings than they started with.

7. Credit Standing Pessimism: Many consumers were pessimistic about their credit standing and expected interest rates to rise in 2024.

These statistics depict a consumer base that, despite being cautious about the economic future and facing real challenges with savings and expenses, demonstrates a remarkable resilience in managing their financial health amidst fluctuating economic conditions.

As financial analysts, policymakers, and business leaders in the subprime lending market, it is imperative that we proactively respond to the emerging trends indicating a substantial increase in new loan originations.

This surge necessitates our urgent preparation and innovation in product offerings, particularly through the development of unique, collateralized loan products like car title loans.

Furthermore, we must brace for heightened regulatory scrutiny, especially concerning APRs, to ensure compliance and maintain trust.

By understanding and adapting to these dynamics, we can enhance our service delivery and meet the evolving needs of our consumer base more effectively.

[Link to the original Report: Payments New Reality]

4-WAYS I CAN HELP YOU!

Grab a copy of our “bible:” Learn More

Brainstorm: Learn More

The Business of Lending: Learn More

Free Bi-Monthly Newsletter: Learn More

30
Apr

Fintech Lenders “Don’t Need No Stinking Badges” Quo: Lender to the Masses

Posted by Team Jer / Profits, Strategy

How to Loan Money to Strangers

Man, there are some serious new approaches to “The Business of Lending to the Masses” entering the marketplace.

I’ve previously broken down OneMain.com, Dave.com, and Earnin.com… and more on our Blog. Today, I point you to Quo.

Now if you’re “old school,” like I was back in the day, this will likely piss you off!

After all, to build your consumer loan business it’s likely you approached the launch of your payday loan business, your installment loan business, your car title loan business, your pawnshop business… whatever you choose to call it, and plodded through your state licensing process.

You then selected a loan management software provider, integrated with ACH and debit card providers, struggled to get a bank account opened… and on and on.

Just to get a State license can kill 30 – 90 days+. Oh, you’re a Lender so let’s not forget to get your Bond! And your lawyer, your consumer loan contracts…

Of course, by collaborating with a federally recognized Native American Indian tribe you could get set up within 30 days and loan in 37+ States.

Why do I suspect the following Forbes piece will upset you?

Because these new Fintech Lenders “don’t need no stinking badges” – I mean licenses. [Shout out to Clint Eastwood in “The Good, the Bad and the Ugly.” Great movie and soundtrack!]

According to the Forbes article:

“Quo relies on using AI to sort through a user’s financial transactions to understand their spending habits.

Once a user’s economic history is compiled and interpreted, the startup sends a debit card to the user for financial use.

The debit card allows access to two types of loans via a monthly subscription: $5.99/month for $400 at 5% APR or $9.99/month for $700 at 2% APR.

Those interest rates are dramatically lower compared to credit cards and payday loans.

The startup providing these loans via a small-monthly fee with borrower-friendly APRs reflects their mission of not wanting their users to be in debt.

Unlike the conventional credit business models, profit is not made by keeping users spending and perpetually in debt to pay interest, but by getting them out of debt to build savings.

These loans come with user-specified constraints, such as the money can only be used at merchants that are relevant to the purpose of the loan.

If someone is taking out the loan to make a car payment, then the user can only spend that money to pay off the vehicle for that month.

More importantly, if a user falls behind on their loan repayment, Quo is able to restructure the loan in real-time to adjust to a person’s immediate financial constraints.”

4-WAYS I CAN HELP YOU!

Grab a copy of our “bible:” Learn More

Brainstorm: Learn More

The Business of Lending: Learn More

Free Bi-Monthly Newsletter: Learn More

payday loans

22
Apr

Why the Goeasy Ltd Model is the Future of Non-Prime Lending!

Posted by Team Jer / Strategy

Goeasy Ltd. Reports Results for the Fourth Quarter and Full Year
& Announces Increase to Automotive Securitization Facility

Quarterly Loan Originations of $705 million, up 12% from $632 million

Loan Portfolio of $3.65 billion, up 30% from $2.79 billion

Quarterly Net Charge Off Rate of 8.8%, down 20 bps from 9.0%

Quarterly Diluted EPS of $4.34, up 154%;

Adjusted Quarterly Diluted EPS1 of $4.01, up 32% from $3.05

Annual Diluted EPS of $14.48, up 72%;

Adjusted Annual Diluted EPS1 of $14.21, up 23% from $11.55

Annual Dividend per Share Increased to $4.68, up 22% from $3.84

Let’s delve into Goeasy LTD’s March 2024 and Q4 2023 financial performance, key findings, background, and some insights based on the data available in these Goeasy documents.

Background and Overview:

Goeasy Ltd is a Canadian company specializing in offering high-interest loans to consumers who typically do not qualify for traditional bank loans.

Their services include both secured and unsecured consumer loans, with a strategic focus on underbanked or credit-challenged individuals.

Goeasy also leverages a network of retail locations alongside a robust online platform to service their loans.

Financial Performance Highlights

Q4 2023
– Revenue Growth: Goeasy reported a significant increase in revenue compared to Q4 2022, largely due to increased loan originations which reflect a continuing demand for non-prime consumer credit.
– Net Income: There was a notable improvement in net income, driven by better loan performance and cost management.
– Loan Book Quality: The loan book showed resilience with reduced delinquency rates, thanks to enhanced credit assessment techniques.

March 2024

– Annual Performance: The annual report reflects a sustained increase in revenue year-over-year, with a robust growth in both secured and unsecured loan portfolios.
– Operational Efficiency: Operating expenses as a percentage of revenue have decreased, indicating improved operational efficiency.
– Expansion: Goeasy has expanded its market reach by opening new branches and enhancing its digital platform to accommodate a broader demographic.

Key Takeaways

– Steady Growth: Goeasy Ltd has shown consistent financial growth, underscoring the effectiveness of their business model in the subprime lending market.
– Operational Resilience: Operational improvements have contributed to a lower cost structure, making the company more resilient against economic fluctuations.
– Credit Risk Management: Enhanced credit scoring and risk management practices have resulted in a healthier loan book with fewer delinquencies.

Strategic Insights

– Market Position: Goeasy’s focus on technology and customer service continues to solidify its position in the market as a preferred lender for non-prime consumers.
– Investment in Technology: Continuous investment in digital platforms is critical, especially to cater to the younger demographic and improve the customer loan management process.
– Regulatory Environment: Staying ahead of regulatory changes and maintaining a proactive approach towards compliance is vital for sustaining growth and mitigating risks.

Goeasy is likely to continue benefiting from the expanding market demand for alternative financing solutions.

However, they must remain vigilant about potential economic downturns that could affect their customer base’s ability to repay loans.

By harnessing advanced analytics for better risk assessment and exploring new market segments, Goeasy can potentially enhance its growth trajectory and profitability in the coming years.

The strategy should also include a strong focus on customer education and financial literacy to reduce default risks and foster customer loyalty.

Overall, Goeasy Ltd’s financial health appears robust, with effective strategies in place to navigate the challenges and opportunities of the subprime lending market.

21
Apr

How Lending to Strangers Can Become Your Most Profitable Venture Yet!

Posted by Team Jer / Strategy

Lending Money to Strangers

Customer Referral Programs

Here’s an expansion on the idea of “Smart Referral Programs” for lenders, specifically focusing on providing excellent customer service and enhancing client engagement through various strategic actions:

1. Personalized Customer Service: By ensuring customer service representatives (CSRs) address clients by name, lenders can create a more personalized and welcoming environment. This practice not only fosters a sense of belonging but also increases customer loyalty and satisfaction.

2. Genuine Engagement: When CSRs display genuine care through smiling and proactively offering help, it significantly enhances the client experience. This approach should extend to clarifying doubts and providing explanations, further demonstrating the company’s commitment to its clients.

3. Incentives for Positive Reviews: Motivating CSRs with financial incentives for gathering positive reviews, such as $5 for every 5-star review, can drive better customer service while simultaneously enhancing the company’s reputation online.

Note that the Testimonial.to Platform offers an easy way for you to acquire 5 star reviews for virtually all social media platforms and your websites and Blogs!

4. Special Gestures of Appreciation: For example, covering a client’s payment as a gesture of goodwill when they have paid an equivalent of the principal in fees can be a powerful loyalty builder. This surprise act of kindness, which may cost $15-$25, is significantly less than the cost of acquiring a new customer, particularly when considering the lifetime value of a client which can be several thousand dollars.

5. Facilitating Convenient Payments: Enabling online payments for loans can significantly enhance convenience for clients, encouraging timely payments and reducing logistical barriers that might prevent on-time payment submission.

6. Upgrading Physical Spaces: Updating the lobby and other client-facing areas to be more welcoming and comfortable can make a significant positive impact on client perceptions and comfort, thereby enhancing the overall customer experience.

7. Empowering and Training CSRs: CSRs should be well-trained not only to handle queries effectively but also to be proactive in their customer interactions. This could include offering additional services or assistance that might benefit the client, thereby preemptively addressing potential issues or needs.

8. Implementing customer payment alerts via SMS and email significantly improves your customer payment transactions. Know that your customers dont really want to talk to you!

These strategies collectively enhance customer retention and satisfaction, creating a more favorable business environment and increasing the profitability of lending operations through repeat business and positive word-of-mouth.

Questions? Need help? Introductions? Brainstorm?

Reach out to Jer at : Jer@theBusinessOfLending.com

4-WAYS I CAN HELP YOU!

Grab a copy of our “bible:” Learn More

Brainstorm: Learn More

The Business of Lending: Learn More

Free Bi-Monthly Newsletter: Learn More

02
Apr

Rethinking APR: The Misguided Metric Hurting Borrowers

Posted by Team Jer / Strategy

Misconceptions Around Short-Term Loan Costs and the Ineffectiveness of APR

Understanding Short-Term, Small-Dollar Loan Expenses

Short-term, small-dollar loans, often misconstrued in cost discussions, have a straightforward expense structure for consumers: borrowing $100 typically incurs a flat fee of $15 until the next payday.

This model is transparent, with no hidden charges or escalating interest, ensuring that the repayment amount remains constant regardless of the repayment timeframe.

The Flawed Application of Annual Percentage Rate (APR)

Despite regulations mandating lenders to disclose fees as a dollar amount and an APR, the latter is inappropriate for short-term loans.

APR calculations assume the extension of a loan across a year, which misrepresents the actual usage pattern of these loans, often limited to a few weeks or months.

This is akin to comparing the cost of a daily parking space to an annual lease, distorting the true cost of short-term financial solutions.

The Disruption Caused by APR Caps

Attempts by some legislatures to introduce APR caps, essentially at 36%, severely hinder lenders’ ability to operate viably.

For instance, under such a cap, the fee on a $100 loan barely reaches $1.38, which is insufficient to cover operational costs, let alone allow for sustainable business practices.

Moreover, research indicates such caps drastically reduce loan accessibility for subprime borrowers, pushing the average loan size up and reducing the overall loan volume, contrary to consumer welfare.

The Real-World Implications of a 36% APR Cap

The imposition of a 36% APR cap not only fails to cover lenders’ operational costs but also reduces the availability of credit for consumers in dire need.

Historical data and modern analyses suggest that the costs and risks associated with small-dollar lending justify higher interest rates to maintain service accessibility.

Ironically, efforts to protect consumers by capping rates at 36% limit their access to essential financial services during emergencies, driving them towards less regulated or more costly alternatives.

A Call for Reevaluation

The ongoing debates and legislative efforts to cap APRs at 36% overlook the nuances of short-term, small-dollar lending.

A more nuanced approach, acknowledging the unique nature of these loans and the essential service they provide millions of Americans, is crucial.

Legislators and consumer advocates must reconsider the impact of stringent caps on the populations they aim to protect, ensuring that financial regulations foster consumer protection and access to necessary credit.

Ready to Brainstorm? Choose a day/time: LINK

Questions? Need help? Introductions? Reach out to Jer at : TrihouseConsulting@gmail.com

4-WAYS I CAN HELP YOU!

Grab a copy of our “bible:” Learn More

Brainstorm: Learn More

The Business of Lending: Learn More

Free Bi-Monthly Newsletter: Learn More

Category: Strategy

Posted by Team Jer / 36% APR, Strategy

The Fallout of the 36% APR Cap: A Case Study of Illinois

The Demand for Short-Term Credit Persists

Misguided Legislation and Unintended Consequences

Evidence from Other States

The Bankruptcy Boom

Addressing Opposing Viewpoints

A Call for Balanced Regulation

Encouraging a Dialogue

4-WAYS I CAN HELP YOU!

Team Jer

Posted by Team Jer / Strategy

Digital Marketing Ideas

Offline Marketing Ideas

4-WAYS I CAN HELP YOU!

Posted by Team Jer / Strategy

The Controversial Truth About Payday Loans: Necessary Evil or Predatory Trap?

The Case for Payday Loans

What do you think? Are payday loans a necessary evil or a predatory trap? Share your thoughts in the comments below!

4-WAYS I CAN HELP YOU!

Posted by Team Jer / Strategy

4-WAYS I CAN HELP YOU!

Posted by Team Jer / Strategy

4-WAYS I CAN HELP YOU!

Posted by Team Jer / Profits, Strategy

How to Loan Money to Strangers

4-WAYS I CAN HELP YOU!

Posted by Team Jer / Strategy

Posted by Team Jer / Strategy

Lending Money to Strangers

Customer Referral Programs

4-WAYS I CAN HELP YOU!

Posted by Team Jer / Strategy

4-WAYS I CAN HELP YOU!

How to Loan Money to the Masses

6 In 10 People Don't Have $500 cash!

That's 156,000,000 Adults!

CURO, a publicly traded lender, originates $1 Billion dollars [+/-] in consumer loans every 3 months. They have approximately a 3% market share. What's this mean for you? OPPORTUNITY!

RECENT POSTS

Categories

Limited Time Inflation Relief Pricing $147 Off ends in